The traditional touchstones for assessing whether employment is healthy, or anemic are the number of new jobs created in the private sector each month and the hallowed unemployment rate. Both of those statistics remain vitally important—but at the same time, they don’t tell the full story, which should measure not only the number of jobs that are being created and the percentage of the labor force gainfully employed, but also the quality of the U.S. job market. Something certainly seems awry these days, with one of the lowest unemployment rates in history together with caution flags on economic growth. The two together make strange bedfellows—the kind of conundrum that might be solved by an index of job quality I helped create a few years ago in concert with business, academic, and policy experts.            

We began with the conviction that while many aspects of job quality are subjective, we could create a tool that quantified it. What emerged, in 2019, was the U.S. Private Sector Job Quality IndexR (JQI), now under the auspices of the University at Buffalo’s School of Management with the assistance of Quent Capital Collaborative Research Director Cristian Tiu. As the research on the JQI continued, we found that the index was not only a measure of employee satisfaction, but a useful tool for understanding and perhaps even predicting long-term economic trends.

Declining Job Quality

The index uses a simple and intuitive proxy for job quality: how much employees are making per week. The data are readily available in raw form from the U.S. Bureau of Labor Statistics (BLS) in reports that are released monthly. One of the data series breaks down the hourly wages for Production and Non-Supervisory positions—which comprise 82% of all private-sector jobs[1]—in 180 different industry groups.[2]

The JQI divides those 180 industries, adjusted for more accurate reporting, into two large categories: industries that, on average, paid more than the mean for the full industry set, and industries that, on average, paid less. We refer to them as offering high-quality and low-quality jobs, respectively, under the assumption that higher pay is more satisfying. Of course, there are other measures of job satisfaction, but earnings are surely an important, and tangible, contributor.

While every industry includes both high- and low-quality positions, each leans in one or the other direction at a given time. Among the current high-quality groups are broadcasting, financial advisory, oil-and-gas extraction, and skilled factory work. On the lower-paying side are many service industries, including health care, education, leisure & hospitality, and retail. 

The JQI, which is updated and released monthly, assembles, refines, and weights the data in line with the number of positions in each industry, on a scale where 100 indicates an equal distribution of high- and low-quality jobs. An index value above 100 signifies a tilt toward high-quality positions, and the opposite for scores below 100. Its value at any point and its longer-term trend can be useful information for policymakers, economists, academics, investment-portfolio managers, and investors themselves. Here’s what the latest JQI, released in early October, looks like. It reflects data from August, and where available, September.

There’s been a good deal of month-to-month variability, as you’d expect. But the trend line is clearly downward, from about 95 in 1990, when the data series begins, to 81.07 in August 2022: In general, workers are earning less than they used to, for several reasons:

  • Globalization has been a trend for decades, making American manufacturing a shadow of its former self (goods-producing jobs now are filled by only about 17% of the employment base[3]). The lion’s share of the displaced workers have migrated to lower-paying positions in the Service sectors, because that’s where most of the work is.

  • Yes, the globalization trend is turning around now in some sectors, particularly makers of durable products (autos among them) that have excess capacity and newly-open supply chains. But globalization is far from a dead letter and is also currently benefiting from a high U.S. dollar, which makes costs cheaper abroad for many producers.   

  • Reduced wages are only one part of the story. The other is reduced hours, and not because workers want to take off more time. Rather, more hours are simply not in the specs. And so, for example, the average of hours worked per week in the U.S. is now about 34, split between 38 for high-quality jobs and only 30 for the low-quality cohort. Further, most of the Production & Non-Supervisory positions are now low-quality, particularly in non-durable consumer goods, a sector whose jobs generally pay less and offer fewer hours than the average for manufacturing.[4] 

A Complementary Economic Tool

What should investors make of all the data? To begin, the JQI is not meant to be a guideline for forecasting cyclical economic changes, let alone timing the investment markets. Instead, the JQI helps illuminate longer-term trends. Does this mean that the index will keep trending down forever? Perhaps not, but it’s also not likely to turn around quickly. 

In that vein, the index correlates strongly with some major economic metrics, including the U.S. trade deficit (not surprising, since the deficit has been generally widening along with a declining JQI), the U.S. labor-productivity rate (also trending down), and the direction of interest rates on long-term Treasury bonds. Although I’d be cautious here, the JQI may be a useful predictor in scenario forecasting.

As I suggested at the beginning of this post, the index can also help untangle some economic puzzles, like the current combination of low unemployment and slowing growth. After all, doesn’t low unemployment suggest fast growth? Yes, most of the time—but not always. Today’s relatively low current JQI reading suggests that although the labor market is tight, many workers are disaffected: They’re underemployed, often in jobs that don’t pay them as much or allow them to work as many hours as they’d like. With many in the labor force disaffected, underutilized, or both, it’s not a surprise that the economy may be slowing or even contracting. The JQI helps illuminate these and related sore points; it remains to be seen how they will affect long-run economic output and labor productivity.  

Investment Implications

As to managing investment assets, what does the JQI suggest? Certainly not that we should avoid “low-quality” industries. Investments in select lower-paying industries can play out very well, and as I already said, there are higher- and lower-quality subsectors in every industry. Rather, the JQI offers us further proof that rigorous research, industry-by-industry and company-by-company, is critical in identifying opportunities and risks. And although the JQI doesn’t segment results by capitalization size, it gives me added conviction in the power of entrepreneurial, small companies to generate extra return over time—precisely because they tend to foster greater levels of employee satisfaction.[5]

Finally, as we know, one transformation leads to another. For instance, if the nature of work is changing (see my recent blog post on the future of work), so are its venues. Will the office re-emerge as the centerpiece of work when (or if) COVID is finally defeated—or will a majority of employees who can work partially or totally from home continue to do so? If so, that will change the landscape of work. For those who insist, “Employees will have to come back to the office,” what would most Americans have said 50+ years ago about the likelihood of China becoming an economic giant second only to the U.S.?

[1] Daniel Alpert, Jeffrey Ferry, Robert C. Hockett, and Amir Khaleghi, “The U.S Private Sector Job Quality Index,” November 2019 (white paper), p. 6.

[2] We also use a different BLS series that includes all positions, not just production and non-supervisory, in 123 industry groups to construct the JQI-Instant Index, which is a snapshot in time (versus the JQI, which presents data on a lagging three-month-rolling basis). The JQI-Instant focuses on monthly job gains and losses in high- and low-quality industries, differentiated from each other by average wages paid.    

[3] “U.S. Job Quality Is as Important as Job Quantity,” University at Buffalo School of Management video presentation on the JQI.

[4] Alpert, Ferry, Hockett, and Khaleghi, pp. 15-16.

[5] See, for example, Srilagna Saha, “Why Some Employees Get Greater Work Satisfaction from Smaller Companies,” The Economic Times (, last updated December 6, 2012. 

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